Managerial Finance II

Assignment 1:

Direction: Your response should be a minimum of one (1) single-spaced page to a maximum of two (2) pages in length

NOTE: Show all work in arriving at the solutions requested.

1. Discuss four (4) advantages and four (4) disadvantages accruing to a company that is traded in the public securities markets.

2. Garland Corporation has a bond outstanding with a $90 annual interest payment, a market price of $820, and a maturity date in five years. Find the following:

a. The coupon rate

b. The current rate

c. The approximate yield to maturity

3. An investor must choose between two bonds: Bond A pays $92 annual interest, has a market value of $875, and has 10 years to maturity. Bond B pays $82 annual interest, has a market value of $900, and has two years to maturity.

a. Compute the current yield on both bonds.

b. Based on your computations above, which bond should the investor select?

c. A drawback on the current yield is that it does not consider the total life of the bond. For example, the approximate yield to maturity on Bond A is 11.30%. What is the approximate yield to maturity on Bond B?

d. Has your answer changed between parts “b” and “c” of this question in terms of which bond to select? Explain.

Assignment 2:

Directions: Your response should be a minimum of one (1) single-spaced page to a maximum of two (2) pages in length

NOTE: Show all work in arriving at the solutions requested.

1. The Wall Street Journal reported the following spot and forward rates for the Swiss franc:

Spot……………………. $0.7876

30-day forward………… $0.7918

90-day forward………… $0.7968

180-day forward………. $0.8039

a. Was the Swiss franc selling at a discount or a premium in the forward market?

b. What was the 30-day forward premium (or discount)?

c. What was the 90-day forward premium (or discount)?

d. Suppose you executed a 90-day forward contract to exchange 100,000 Swiss francs into U.S. dollars.

How many dollars would you get 90 days hence?

e. Assume a Swiss bank entered into a 180-day forward contract with Citicorp to buy $100,000. How many francs will the Swiss bank deliver in six months to get the U.S. dollars?